Paschi says ECB rejected fundraising delay on liquidity concern

[MILAN] Banca Monte dei Paschi di Siena SpA said the European Central Bank rejected its request to extend a capital increase into January over concerns that the Italian lender's liquidity and capital ratios may deteriorate, posing a risk to its survival.

The ECB also said moving the deadline to Jan 20 wouldn't guarantee a more favourable market that might prompt banks to underwrite the share sale, Siena-based Monte Paschi bank said in a statement on Tuesday. The deadline for the 5 billion-euro (S$7.553 billion) capital boost remains Dec 31.

Chief Executive Officer Marco Morelli is racing to find backers for the reorganisation that would clean up the bank's balance sheet with the disposal of 28 billion euros of soured loans.

Monte Paschi is planning to ask retail investors to swap a total of about two billion euros of subordinated bonds for equity if it gets regulatory permission to eliminate some clauses that had discouraged savers from participating in a previous swap offer.

The Italian bank asked for the deadline to be extended after Prime Minister Matteo Renzi said he would resign after voters strongly rejected a constitutional referendum that he had backed. Monte Paschi said on Friday that banks hadn't yet committed to the transaction.

The stock declined 1.9 per cent in Milan trading at 10.10 am, valuing the company at 591 million euros.

UniCredit SpA, Italy's largest bank, gained the most in six years on Tuesday after it laid out plans to raise 13 billion euros in a rights offering and eliminate thousands of jobs to cut costs.

BLOOMBERG